Periodically review your governing documents (articles of incorporation and bylaws) and make sure you are operating consistent with those documents and that they remain compliant with applicable laws (which change over time).

Ensure that you are nurturing the development of the board (continual recruitment and retention practices can be critically important).

Since October 2010, formerly tax-exempt organizations across the country have been dropping like flies from the rolls of the Internal Revenue Service Charitable Organizations Bureau. What’s a small non-profit organization to do? Take heart, there are pathways back to tax-exemption.

1. Submit a formal reinstatement request: If, in fact, your organization has been engaged in activities that support its mission and fill a needed void in the community, then the first step is to request reinstatement by the Service through a letter of appeal. This letter should be accompanied by a completed form 1023, and all its requisite schedules and information requests. Upon initial review, the Service may place your request in either its Expedited Review or Accelerated Review Program, classes of review that will ensure that your tax-exemption is reinstated as quickly as possible. Of course, which review class oyu are placed in will determine the timeline you should be prepared to accomodate unitl your tax-exempt status is reinstated. This is why it is key to have knowledgeable legal counsel handle the reinstatement process for your organization: it may make the difference between tax-exempt reinstatement and for-profit treatment by the Service.

2. Form 8734: Many organizations have lost their tax-exept status simply because they failed to inform the Service of their financial activities for the first five years of the organization’s existence. Although submission of Form 8734 was eliminated in 2008, for charities created prior to the revised regulation, the submission requirement remains. And if not complied with, the regulation will prompt the Service to remove your organization’s tax exempt treatment.

3. Keep going!: There is nothing that proves your worthiness of continued tax exempt treatment than the continued provision of worthy charitable services to the community you serve. So keep going! This work should be able to be documented by real numbers (# of children served, # of contirbutions received, # of community events held,…) which you should use in your reinstatement appeal.

Final thoughts: Should you find your tax-exempt status denied, fret not–all is not lost. Do retain knowledgeable counsel to facilitate your pathway back into the fold of tax-exemption, and going forward, assist you with maintaining your tax-exemption through timely compliance with federal and state statutes codified to regulate charitable organizations.

Under the new regulations, a new 501(c)(3) organization will be classified as a publicly supported charity, and not a private foundation, if it can show that it reasonably can be expected to be publicly supported when it applies for tax-exempt status. English translation: Make sure that at leas one-third of your contirbutions come from public sources (and not your personal checking account), and you will likely pass the test.

Under the old regulations, an organization that wanted to be recognized by the IRS as a publicly supported charity instead of a private foundation had to go through an extended two-step process. First, the organization had to declare that it expected to be publicly supported on an on-going basis. Then, after five years, it had to file Form 8734, Support Schedule for Advance Ruling Period, showing the IRS that it actually met the public support test. If it didn’t meet the test, it was designated a tax-exempt private foundation and would be subject to stricter rules.

The new rules no longer require the organization to file Form 8734 after completing its first five tax years. Moreover, the organization retains its public charity status for its first five years regardless of the public support actually received during that time. Instead, beginning with the organization’s sixth taxable year, it must establish that it meets the public support test by showing that it is publicly supported on its Schedule A to Form 990, Return of Organization Exempt From Income Tax.